Will They Wont They The Fed Meets Tonight

Wednesdays trade was a welcome show of positivity for the pound as investors were buoyed towards sterling following the better than expected unemployment figures. Average earnings improved more than expected to 2.9 percent compared to 2.5 percent and the unemployment rate dropped last month to 5.5 percent, when markets were expecting no change from the previous month.

Over in the EU, we saw headline inflation figures released showing a drop from the previous reading and lower than forecast figure which caused the single currency selling pressure. The reason for this was it coincides with what the ECB said last week when they hinted further QE could be on the cards if inflationary pressures continue to hamper growth in the Eurozone.

Ahead of the Federal Reserve’s interest rate setting meeting and policy statement this evening, markets digested US inflation figures yesterday afternoon which came in lower than expected. Hoping for a rise in the rate closer towards the key 2 percent level, it fell short, unchanged from the previous reading. This led to dollar selling as investors take a slowdown in inflation as a negative pressure on the decision to raise interest rates or not. Investors are concerned over the lack of conviction the Fed seem to have had recently, as their dovish stance continues, rocked further by the Chinese interest rate cut. It seems unless we have some conviction tonight, we could see the dollar remain under selling pressure going forward in the short term.

Markets will be looking for an increase in the headline lending rate or a categorical decision to not raise rates this year. Either of these outcomes should give investors confidence in the Fed and the dollar and see the rates for buying USD get worse. Any other result and we are more than likely going to see the dollar slide continue, adding to the two cents sterling and the one cent the euro gained yesterday.

So as we wait for the Fed meeting this evening what else do we have to contend with?

First off is the Swiss interest rate meeting being released as we write although no change is expected. UK retail sales follow an hour later and then we look to the US markets after lunch. Housing starts and jobs data come out at 1.30pm, a manufacturing survey is released at 3pm with the Fed interest rate decision, press conference and policy statement coming this evening from 7pm. Overnight down under in Australia, RBA Governor Glenn Stevens gives a key speech, coming fresh on the heels on the ousting of the ex and election of the new Prime Minister.

Not abundant, but some hefty releases to contend with so if you have a currency transfer to make it would be worthwhile having a chat with one of the CI consultants early on to discuss the options available.